Leupp addressed a crowd of more than 1,000 in Downtown Los Angeles on Tuesday morning, where he and a group of panelists provided some realistic insight for 2010. The bad news is that there are still some significant headwinds due to consumer debt and a tremendous amount of government debt, said Hessam Nadji, managing director of research services at Marcus & Millichap. "But there is a lot of positive news," he added. "The evidence of the actual recovery keeps piling up…This will be a staging and a transitional year."

Dr. Sam Chandan, global chief economist and executive vice president of Real Capital Analytics, explained that one of his major concerns looking forward is government intervention. "It is unclear if there is enough consumer confidence without government intervention to sustain the kind of growth that will drive new employment," he said. But the more immediate concern, he said, "is the way that we balance or do not balance budgets in the US."

No one knows what is going to happen going forward, said Stephen Cauley, director of research at the Richard S. Ziman Center for Real Estate at UCLA, who worries about the world's financial markets, policy risks and global risks. Cauley considered the other panelists a bit too optimistic, noting: "We still have a substantially long period of recovery ahead of us."

Wayne Yamano, senior manager of John Burns Real Estate Consulting, who focuses on the housing market, said that the tremendous amount of government intervention has really helped. "We are optimistic that 2009 will have been the bottom of the housing market," he said. "We don't see any more downward pressure on prices because they are already so low." He pointed out that there are about five million units of shadow inventory across the country, mostly localized in the states that you would consider the usual suspects such as California, Nevada, and Florida among others. "Investors today aren't the flippers that created the bubble," he said, "they are not going to be the distressed sellers of tomorrow."

As far as financing for homebuilders goes, Yamano said it is a very different ballgame for public homebuilders and for private homebuilders. "Public homebuilders are really the only ones that can get financing."

According to Nadji, retail sales stabilized much faster than expected, and no one predicted that capital markets would stabilize as quickly as they did. "I am not advocating unjust optimism, but you cannot ignore positive numbers," he said. "We cannot sit back and basically stay in our caves…those that take advantage of market dislocation take the risk first and we have to take risks, but calculated ones."

Nadji added that "if you look at the natural drivers of the economy, they are beginning to fall into place. The question is whether we will nurture them."

Following the economic update panel, Scott Farb, managing principal of the Reznick Group, served as moderator of the "Two Sides of the Story-Economic Debate" with Ethan Penner, executive managing director of CBRE Investors, and Chris Thornberg, co-founder and principal of Beacon Economics. First on the list to discuss was the outlook for the real estate equity capital markets for 2010. "We are in an interesting time because it does feel like there is too much money chasing deals…it is like there is a feeding frenzy and there is a sense that there is too much capital in the market" said Penner. "It feels like you need to rush to get your money to work, but it is a joke because there is very little money out there."

Investors are licking their wounds and coming back to the market, Penner continued. "I think that capital is being formed and confidence is being rebuilt." He, like other panelists throughout the day, sees 2010 as a different world than 2009, and moving toward the end of 2010, Penner expects the amount of capital that will flow from institutions will be significant.

"If you could raise money today, the question is, what would you do with it? In a sense, it's not so much that you can't raise capital, it is that there is no point until the banks relinquish some of those underwater assets," said Thornberg. "Why raise capital when there is nothing to buy… now isn't the time… it is too early."

Penner noted that a month ago, or even a week-and-a-half ago, he might have agreed with Thornberg's comment, but explained that you can't be pessimistic forever. "I have a sense that there is more regulatory pressure now on banks," he said. "I foresee that this period of inactivity will lead to a level of increased activity."

Some of that level of increased activity may ultimately result in a resurgence of CMBS as a source of financing for commercial real estate, but Thornberg warned that, "It took the CMBS market to truly create a bubble and then a collapse." He said that as CMBS returns, it should be strictly regulated to prevent a recurrence. For now, he said, there is plenty of debt available to do the deals that make economic sense.

Penner said that if and when the CMBS market returns, it will be on a considerably smaller scale than it was at its peak. In other words, there is a place for CMBS in the real estate world, but it is a smaller space than it once was—and that is as it should be.

Instant Insights /

Experts: What a Difference a Year Makes

Related Stories

Recommended For You